US PCE inflation hits three-year high as Iran war drives energy costs
Surging gasoline and supply chain disruptions push April inflation to 3.8 per cent year-on-year, reinforcing expectations that the Federal Reserve will keep rates in the 3.50-3.75 per cent range well into 2027.
US personal consumption expenditure (PCE) inflation accelerated to its fastest pace in three years in April, rising 3.8 per cent year-on-year, according to data released on Thursday by the Commerce Department’s Bureau of Economic Analysis. The figure, which matches economists’ forecasts, marks the largest annual increase since May 2023 and underscores the persistent price pressures stemming from the ongoing conflict with Iran.
The surge in headline inflation was largely driven by soaring energy costs. The national average retail gasoline price jumped 12.3 per cent in April, with prices now rising more than 50 per cent since the conflict began in late February. Shipping disruptions in the Strait of Hormuz have not only pushed oil prices above $96 per barrel but have also strained global supply chains, causing shortages of fertilisers, aluminium, and various consumer products.
Core PCE inflation, which excludes volatile food and energy components, increased to 3.3 per cent annually, up from 3.2 per cent in March. On a monthly basis, the core index rose 0.2 per cent, following a 0.3 per cent increase in March. The PCE price index overall advanced 0.4 per cent month-on-month in April, after a sharper 0.7 per cent rise in March.
Financial markets have adjusted their expectations in light of the data, now anticipating that the Federal Reserve will maintain its benchmark overnight interest rate in the 3.50-3.75 per cent range well into 2027. Minutes from the Fed’s April 28-29 meeting, published last week, indicated a growing number of policymakers are open to the possibility of further rate hikes to combat the inflationary environment.
Consumer spending increased 0.5 per cent in April, supported by tax refunds and savings, but economists warn that this momentum may not hold. With inflation outpacing wage gains and the tax filing season concluded, households are likely to pull back on spending. The economic strain has already impacted political sentiment, with President Donald Trump’s approval rating falling to near its lowest level since he returned to the White House, threatening his party’s prospects in the upcoming midterm elections.
